Employers need to be careful when deciding how and when to sever the employer-employee relationship. It is true that, except in cases where a contract of employment is explicitly or implicitly in place, California employers may discharge employees without cause. This is known as “at-will” employment and it is the law of California. However, under the public policy exception employers are prohibited from firing an employee if the termination would violate a state or federal statute.
Play it Safe
Employers can do well to limit or avoid liability altogether when severing the employer-employee relationship by asking one simple question: “what is the real reason behind the decision to terminate the employee or employees?” If the decision to terminate arises out of a legitimate business necessity, such as employee dishonesty or misconduct, or because of a need to downsize, or a host of other factors falling within the category of sound business judgment, more often than not the decision to sever the relationship will pass muster if subsequently challenged by the employee.
Of course, proving that sound business judgment substantially motivated an employee’s termination will be difficult if there is no credible evidence to support this rationale. For example, if the employee is being terminated for dishonesty or misconduct, is there a written employment policy which defines employee misconduct or was their proof of the misconduct verified by an objective investigation? If downsizing or other economic factors are at play, do the company’s profit and loss statements and annual tax returns demonstrate diminishing profits and a corresponding need to cut costs? And if the employee’s position is being simply phased out, is there evidence that the functions behind the position were no longer needed, merged with or into another position, or simply rendered obsolete?
Employers are not obligated to provide their employees with severance packages at the time of discharge. A severance agreement may be useful where termination is not motivated by employee dishonesty, but sound business judgment and the employee has been with the employer for some time. In such cases a severance agreement and offer of severance pay can actually serve as a way of demonstrating good will, insofar as the employer is doing something not required by law.
Yet, severance agreement must be carefully worded and provide the employee with a right of revocation within a certain amount of time, in order to show that the agreement was not forced on the employee. Generally, a good severance agreement will be upheld if it demonstrates a considered effort to protect the rights of the employer and employee.
Follow the Law
Employees who are discharged must be paid all of their, including accrued vacation, immediately at the time of termination. (Cal. Labor Code §§ 201 and 227.3.) Employees who quit are entitled to their paychecks within 72 hours or immediately if they have given 72 hours notice of termination. (Cal. Labor Code §§ 201, 202, and 227.3.) Employers with 2-19 eligible employees are required to give the departing employees with notice of their Cal-Cobra continuation rights, and other laws come into play for employers employing more than 20 employees.
The point is that there are various state and federal laws that are or may b e triggered when the employment relationship ends, depending on the circumstances. We, at the Law Office of George G. Romain, educate employers regarding their rights and obligations at the time of an employee’s separation, and help them develop consistent policies for any type of employee separation scenario. Contact us today to learn how the Law Office of George G. Romain can protect your business.